Startup terms you ought to know

By Suzana Joel|1st Dec 2016
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Many are left looking quite blank at a business article that reads with high-functioning jargon. It tends to be less comprehensive if you don’t have a working textbook knowledge of these terms, and you’re just lucky if you can make sense of it. Here are some 30-odd terms and phrases that qualify for startup-speak. You can refer to them when you’re stuck with a business article.

Image : shutterstock

Image : shutterstock

Activation

Activation is a measurement of the conversion rate from when a prospective visitor becomes an active user on your website. This would result from a user experience that begins with the user downloading something or even signing up.

Acqui-hire

Acqui-hire, or a signing bonus, is strategy used to acquire talent when a one company buys out another primarily for the skills and expertise of the staff.

Angel investors and Venture Capitalists

An angel investor is a high net worth individual who puts their own finance into the growth of a small business in the early stage as seed funds for debt or equity ownership. They invest in the formative stages of the startup’s business and usually start contributing funds when the startup has something to present, such as a prototype of the product or service.

A venture capitalist is one who is part of a limited partnership who is investing in the startup in the form of venture capital funds. They enter in the later stages of development for a portion of equity or debt ownership in an effort to advance the growth of the company by developing its market share.

Bootstrapping

Bootstrapping is when an entrepreneur begins a venture depending on external sources for financing and raising capital.

Burn Rate and Churn Rate

Burn Rate or the run rate refers to the amount of cash that a company consumes each month to keep itself going. This is usually the total expenses, but is most commonly used when the difference between the cash receipts and the cash expenses is negative.

The term ‘churn’ refers to when a customer who is expected to potentially generate additional future revenue or your company stops being one altogether. The churn rate measures this.

Deck

A ‘deck’, or a ‘pitch deck’, is your average PowerPoint presentation that can be transferred digitally to prospective clients as an investment pitch.

Exit Strategy

When a startup decides to opt for a contingency plan that is executed by an investor, venture capitalist, business owner, etc., it’s an exit strategy. Here, they decide to liquidate a certain financial or tangible asset once it has met the required expectations, or exceeded predetermined criteria.

FMA

FMA (first mover advantage) describes a certain competitive advantage a company can obtain by being the first to bring a specific product or service to a market. This would give such a company strong brand recognition and customer loyalty.

Fintech

Fintech refers to an industry composed of financial technology that describes emerging financial service sector. This includes companies that include technology that enhances financial services through innovation.

Freemium

Most characteristic to internet based businesses, Freemium is a business model that allows a user to access some basic services for free with an option to pay for some advanced features. This is how most website business offer alternative tools for the social media function.

Growth hacking

Grwoth hacking is where art and science meet business ideas that use a set of conventional and non-conventional marketing experiments that lead to the growth of a business. Growth hackers are marketers, engineers, and product managers who try new and improved ways to engage the user base of a business.

Hockey stick curve

Most sought out by the venture capitalists in startups, the hockey stick curve represents the growth rate of a company. It is characterised by a slow initial growth rate that suddenly increases to a much faster growth rate that continues indefinitely.

Lean startup

This in a business development approach that is based on a method of manufacturing that values a business’ ability to change. It aims to shorten product development cycles by adopting experimentation methods that are based on tentative business ideas. The main idea behind this is based on how startups can invest their time into repeatedly building products or services to meet the needs of early customers.

Loss leader pricing

This is a consumer retention strategy. In loss leader pricing, a startup would sell their products or services at a loss as a form of marketing expense to bring in customers they expect repeated business from.

Low-hanging fruit

This is nothing but an easy-to-capture opportunity that startups can use to increase their cash inflows and widen their spectrum of investors.

Minimum viable product

Minimum viable product, or MVP, is a low-cost lightweight prototype of a company’s product that is used to learn more about its potential to sell in the market. Companies use this strategy to decide before they start mass manufacturing the product.

Open-end fund

This is basically a mutual fund that sells as many shares as an investor requires on demand. Any given increase in the cash flows for a company will allow the fund to grow. If the fund experiences any outflow of cash, the number of outstanding shares decreases. These are usually open to investors who have been associated with a certain company for a long time.

Pre-money valuation

A very common term used in private equity or in venture capital industries, it refers to the valuation of a company or an asset before the investment is made.

Post-money valuation

Post-money valuation is the company’s valuation after inflows of capital are added to the balance sheet. This addition to the funds and investments from venture capitalists or angel investors has been included for the valuation.

Recapitalisation

This is when a company decides to revamp its capital structure. It involves the corporate reogranisation of the company’s proportion of equity and debt financing.

Return on investment

Usually used for personal financial decisions, the return on investment is used to compare a company’s performance in terms of the profitability with the efficiency of the different investments. It is usually expressed in terms of percentage.

Pivot

A startup begins to pivot when they want use their existing tech and resources for an entirely different process. This includes doing business in different market segments.

Runway

Runway is the time period that is anticipated for the funds to last supporting the business.

SaaS

SaaS (Software as a Service) is a business model which involves selling subscriptions to use software which is the primary product or service of the company.

Seed capital

Seed capital is a form of securities offering that brings an investor to invest capital in exchange for an equity stake in a company. This usually takes place in the initial stages of the company.

Series A, B, C, and D rounds

These rounds take place in the developmental stages of a startup for the purpose of raising capital. Such rounds are based on the maturity level of the business, potential investors who take an interest, the purpose for raising capital, and how it is allocated. These rounds are vital steps that are required to turn a startup with a profitable idea onto a successful global company.

Series A rounds of funding are basically meant for the optimisation of the product or the user base of a certain startup. It builds on plans that aim at reaping long term capital to push a potential profit generating idea.

Series B rounds of funding are focused on advancing a business beyond the development stage by expanding the company’s market reach. At this stage, venture capitalists who are investing make a huge call on the business plans as they invest in the startups.

Series C rounds of funding aim at scaling up. There is a substantial inflow of capital to up the returns in case a startup is performing well. At this stage, several investors rooting for a certain startup contribute funds to tackle competitors; several acquisitions and acqui-hires take place.

Sweat equity

Sweat equity is the equity percentage that a startup gives to a person for his or her hard work in the company. This is a motivating incentive that can be used in talent acquisition, and in motivating the existing employee base.

Traction

Traction refers to the proof that consumers are actually engaging in the business by using the product or service.

Term sheet

A term sheet is a document which denotes the percentage of ownership and the voting rights the investors are subject to for contributing to the funds of a business.

Unicorn list

A startup company that is valued at over $1 billion is called a unicorn. The term for those startups that are valued over $10 billion is ‘decacorn’, and ‘hectacorn’ is for those startups that are valued over $100 billion.

Unit economics

Unit economics refers to the direct revenues and costs anticipated in a particular business model on a per unit basis. The term ‘unit’ here refers to a single user or consumer involved in contributing to the revenue of the business.

Value prop

Value prop refers to that one unique feature of your business, product, or service that attracts consumers or users.

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